Last week we spoke about the superannuation discussion paper and, the options that were being looked at by the federal government.
Unless you have been engaged in a social media detox, you should have heard that the Federal Government will introduce legislation to change the tax concession caps for superannuation contributions.
While we will wait for the ATO to release more detailed information about the number of people impacted by these changes, the available estimates suggest around 80,000 Australians or about 0.5 % of superannuation funds will be impacted by the new legislation.
How is my Super taxed?
Within the superannuation scheme you may be taxed at three stages, the contribution stage (when you put money into the fund), the accumulation stage (when your fund grows) and finally the withdrawal stage (when you draw down your fund in retirement).
The system was set up to encourage people to save and, the table below summarises the existing tax rates.
| Type of tax | Amount |
| Concessional contributions (before-tax and include super your employer pays and any super salary sacrificed) | 15% |
| Non-concessional contributions (after-tax superannuation savings) | 0% |
| Contributions from high income earnings (over the $250,000 threshold) | 30% |
| Investment earnings (currently) | 15% |
| Proposed change to investment earnings for accounts bigger than $3m | 30% |
| Withdrawals (if under 60yo) | 17-22% |
| Withdrawals (when you’re in the retirement phase and are over 60yo) | 0% |
What’s Changed?
In short, if your superannuation fund has a balance of greater than $3 million, then your taxation rate for earnings above the $3 million will double from 15 to 30 cents. Although these Australians will still pay the standard 15 cent tax rate up to the $3 million cap.
It would work in a similar way to our progressive or tiered individual tax rates for PAYG income.
Essentially you will pay zero per cent tax on anything up to the $1.7 million transfer balance cap established under the Turnbull government, which was designed to limit the growth of tax-free super balances. From that indexed amount to the $3 million mark, you are taxed at a rate of 15 cents and then above the $3 million cap you are taxed at 30 cents.
If that sounded like word soup, here is a table that will hopefully clear things up.
| A three-tiered superannuation earnings system | Tax rate |
| Up to $1.7 million into the retirement phase | 0% |
| Up to $1.3 million remaining in the accumulation phase (to a total fund balance of $3m) | 15% |
| Over $3 million in the accumulation phase | 30% |
Although the key point that seems to have been missed by a few is that the $3 million cap will not be indexed. Over time this means that more Australians will be pushed above the cap due to inflation and compounding returns. I’d be interested to know if any actuarial types have crunched the number on the growth of superannuation funds that could be impacted by the cap over the coming decades, and how much the increased taxation boost would add to the federal budget.
What next?
The federal government will introduce the legislation into parliament and will undertake further discussions with the superannuation industry. These changes are likely to be implemented in 2025.